Qualcomm Struggles To Meet Chip Demand As Chip Crisis Extends To Phones: Reuters

Qualcomm Inc (NASDAQ: QCOM) is struggling to keep up with the demand for its smartphone and gadget processor chips as the auto chip crisis extended to the electronics business, Reuters reports.

What Happened: Smartphone manufacturer Samsung Electronics Co Ltd (OTC: SSNLF) is plagued by Qualcomm’s application processor crisis which formed the heart of smartphones. Qualcomm chip crisis impacted the production of mid-and low-end Samsung models. 

Demand for Qualcomm’s chips has climbed in the past months as customers abandoned phones produced by Huawei Technologies Co Ltd due to the U.S. trade war. 

Why It Matters: Qualcomm has found it hard to fulfill the abnormal demand surge partly due to a chip subcomponent crisis. It also faced a shortage for its new flagship chip, the Snapdragon 888. Interestingly, the company expected to accomplish the Q2 sales forecast provided in February.

However, a top smartphone contract manufacturer admitted a crisis regarding a range of Qualcomm components, followed by a potential cut in handset shipments in 2021.

Xiaomi Corp (OTC: XIACF) (OTC: XIACY) also admitted the extreme chip crunch. The crisis has so far affected mainly the older technology rather than Qualcomm’s advanced phone processors. But Qualcomm’s issues have proven faster transmission of the complex chip supply chain issues necessitating advanced mass production plans.

Key parts of Qualcomm’s Snapdragon 888 processors were produced by Samsung’s separate chipmaking division utilizing a 5-nanometer manufacturing process that is hard to scale quickly. A Texas Samsung factory that manufactured some of Qualcomm’s radio frequency transceivers was forced to halt operations last month due to power shortages caused by winter storms whose impact is still unclear.

Qualcomm’s entire line-up of application processors contained power management chips made with older technology by companies including China’s Semiconductor Manufacturing International Corp (OTC: SMICY) and Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM).

Global supply chains are very tightly integrated and are less resilient, as per Bernstein analyst.

The chip shortage prompted panic buying further squeezed capacity and drove up costs of the cheapest components of nearly all microchips. A commonly used microcontroller-unit chip from STMicroelectronics NV (NYSE: STM) originally priced at $2 amounted to $14. 

Qualcomm, along with other chipmakers, sought President Biden’s assistance to counter the crisis, who pushed for a $37 billion Congressional funding.

Price action: QCOM stock was down 1.55% at $129.7 in the pre-market session on the last check Friday.

Image Courtesy: Wikimedia

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